Question

Suppose the price elasticity of supply for cheese is 0.6 in the short run and 1.4 in the long run. If an increase in the demand for cheese causes the price of cheese to increase by 15%, then the quantity supplied of cheese will increase bya. 0.4% in the short run and 4.6% in the long run.
b. 1.7% in the short run and 0.7% in the long run.
c. 9% in the short run and 21% in the long run.
d. 25% in the short run and 10.7% in the long run.

Answer 1

Answer:

Option (c) is correct.

Explanation:

Given that,

Price elasticity of supply for cheese = 0.6 in the short run

Price elasticity of supply for cheese = 1.4 in the long run

If an increase in the demand for cheese causes the,

Price of cheese to increase by 15%

In short run,

Price elasticity of supply for cheese = Percentage change in the quantity supplied ÷ Percentage change in the price

0.6 = Percentage change in the quantity supplied ÷ 15

0.6 × 15 = Percentage change in the quantity supplied

9% = Percentage increase in the quantity supplied

In long run,

Price elasticity of supply for cheese = Percentage change in the quantity supplied ÷ Percentage change in the price

1.4 = Percentage change in the quantity supplied ÷ 15

1.4 × 15 = Percentage change in the quantity supplied

21% = Percentage increase in the quantity supplied